When a late payment is $39.99 and a mark on your credit record, even the smallest, lowest-interest debts become high-risk. Reducing the number of risks (and mental energy managing them) easily outweighs the interest differences.
When you have to spend a 1/2 day to refinance a credit-card to an unsecured personal loan, it's not always a clear win: you might not get the loan, or the loan offered might have significantly higher interest rate than advertised, etc.
Exactly. Every small balance is a potential disaster in the making, an autopay that inexplicably fails, a teaser interest rate that expires, an unexpected annual fee or recurring charge from a merchant, a supremely annoying hour on the phone, etc. I had the exact same reaction to that part as you did. If you're going to evaluate economic actors for rationality you have to make sure your assumptions of what's rational are well grounded first.
I agree. I find my self doing this often with to do lists. Knock off quick and easy stuff so i feel like im making headway even if its not the most important / impactful. I find that more tempting in personal than work where i am only accountable to My self.
So I can definitely to the "irrational" people in here, it's not so irrational when you think about all the consequences.
Also, typically debt accounts have minimum payments. One point in favor of the Snowball Method[1] is that it typically increases your working capital at the expense of greater total payments. For people with few assets, this can help insulate them from emergencies.
Hmm.. I agree with this a bit, but I think (like all things) the answer lies in the middle. Speaking purely from anecdotes, I'm well versed in the math behind interest rates and debt management, yet I still find myself with urges compelling me to pay off smaller debts first. This is even when it takes no mental energy for me to manage my current situation because my payments are set up to automatically deduct. I think my own urges come simply from wanting to feel like the money I spend on a car payment is suddenly "freed up" and available, despite losing money by allocating it from other mathematically better uses of that money. I recognize that this is a misguided notion, but it's still tough to get away from, and I believe it has some to do with how my brain accounts for losses versus gains.
Now I'm also not saying that your situation doesn't happen either, so I'd still say this article is useful if it helps anybody who is truly misevaluating their debt situation to rectify it and pay less interest overall.
Many online companies now let you get a personal loan in far less time, id say in under an hour for most people. There may be a veritification process that adds on time but it's definitely not required for everyone (and usually are for people who are uncomfortable with online verification)
When you have to spend a 1/2 day to refinance a credit-card to an unsecured personal loan, it's not always a clear win: you might not get the loan, or the loan offered might have significantly higher interest rate than advertised, etc.